Department of Defense's 2015 retirement plan cost analysis

Abstract

The new military retirement system is advertised to significantly reduce the Department of Defense's (DOD) monetary outlays over the short and long term. These savings are generated through a variety of assumptions outside of the department's control. The variables that have the greatest impact over cost savings are controlled by service members' (SM) actions, choices, and federal interest rates. Critical analysis of these variables could potentially affect future cost savings and is key in budget preparation and future spending plans. This MBA report presents a sensitivity analysis on three separate variables that have a significant impact on retirement costs. Realistic manipulation of these independent variables will show short-term versus long-term cost savings. Additionally, a high-cost and low-cost scenario is explored. With cost scenarios differing up to $321 billion, DOD needs to be aware of the potential effects of future outlays. It is recommended that DOD conduct additional economic research and acquire further data on the preferences of current SMs in order to provide a more narrow range of cost savings.